K-Mart Pro Forma Analysis 2002

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K-Mart Pro Forma Statements For Anticipated 2002 Year-End Results Introduction In order to create Pro Forma income statements and balance sheets, it is important to use an accurate growth rate and appropriately measure future figures by their relationship to sales. We have decided to use a growth rate that is calculated by use of the end-point method. While the end-point method and regression growth rates yielded similar results, 2.32% and 2.27% respectively, we decided to use the end-point method because it seems to eliminate a small section of volatile sales figures. In a regression where 2 years of highly-deviated sales were removed, sales growth was 2.82%. There were several difficulties, above and beyond the standard calculation of Pro Forma statements, that we encountered. As we analyzed K-Mart's balance sheet and income statement for the year ended January 1, 2002, we noticed many expenses that are random in nature along with special equity financing (already in place) that required payment of dividends – in the case of K-Mart, paid out of retained earnings as they recorded a net loss and no funds available for distribution in both 2001 and 2000. Although official plans had not yet been made to formally restructure the organization, K-Mart's financial statements elude to an almost certain, soon-to-come buyout. After the first attempt at a Pro Forma statement, we found that K-Mart is expected to yield a net loss – which is no surprise as they had done so in the prior 2 years. With a net loss, we presumed that no dividends would be paid to common stockholders; however, there is evidence of a collection of outstanding equity that requires dividends. These securities are “company obligated mandatorily redeemable convertible preferred securities,” which require a $70 million dividend per year – although no funds have been available for

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